HealthLease Properties Real Estate Investment Trust Announces Third Quarter Results and Provides Additional Detail on Withholding Tax

TORONTO, Nov. 4, 2014 /CNW/ - HealthLease Properties Real Estate Investment Trust (HLP.UN) ("HealthLease" or "the REIT") today announced its financial results for the three and nine months ended September 30, 2014.  All amounts expressed are in Canadian dollars unless otherwise noted.

The REIT entered into an agreement on August 12, 2014 with certain wholly-owned affiliates of Health Care REIT, Inc. ("HCN") whereby HCN will, among other things, acquire all of the outstanding units of the REIT (the "Transaction").  In connection with the Transaction, the REIT's Unitholders will receive Cdn $14.20 per unit in cash (less any applicable withholding taxes).  At a special meeting held on October 27, 2014, the holders of units and special voting units of the REIT approved the Transaction.   If the approvals of the remaining regulatory authorities, as described in the REIT's management information circular, dated September 22, 2014, are obtained and the other conditions to the completion of the Transaction, as described in the circular, are satisfied or waived, it is expected that the Transaction will be completed in November 2014.

Q3 2014 Financial Highlights

  • FFO of $0.25/unit ($0.25 fully diluted), in-line with $0.26/unit in Q3 2013.  FFO was impacted by $2.5 million of costs associated with the Transaction.
  • AFFO of $0.27/unit ($0.24 fully diluted), up 12.5%, from $0.24/unit in Q3 2013.
  • Debt to gross book value, including convertible debentures, of 56.2% (50.3% without convertible debentures).
  • Payout ratio of 78.2% of AFFO.

 
Summary of Results
000's, except per unit data For the three
months ended
September  30,
2014
  For the three
months ended
September  30, 2013
  Change
(%)
Revenue $19,649   $12,785   53.7%
Net Profit ($9,663)   $5,345   (280.8%)
Funds from Operations (FFO) (1) $9,441   $7,090   33.2%
Adjusted Funds from Operations (AFFO) (2) $10,121   $6,532   54.9%
Weighted Units Outstanding (diluted) 40,826   27,381   --
           
FFO per unit (basic) $0.25   $0.26   (3.8%)
FFO per unit (diluted) $0.25   $0.26   (3.8%)
AFFO per unit (basic) $0.27   $0.24   12.5%
AFFO per unit (diluted) $0.27   $0.24   12.5%
Payout Ratio(3) 78.2%   89.1%   --

Footnotes:
(1)  "FFO" is defined as net profit in accordance with IFRS adjusted as follows: (i) plus or minus fair value adjustments on investment properties; (ii) plus or minus gains or losses from sales of investment properties; (iii) plus or minus other changes in fair value of financial instruments which are economically effective hedges; (iv) plus acquisition costs expensed as a result of the purchase of a property being accounted for as a business combination; (v) plus distributions on exchangeable units; (vi) plus deferred income tax expense; and (vii) plus adjustments for property taxes accounted for under IFRIC 21, after adjustments for equity accounted entities and joint ventures calculated to reflect FFO on the same basis as consolidated properties.
(2)  Adjusted funds from operations, or AFFO, is defined by the REIT as a measure of operating cash generated from the business.  AFFO is calculated as FFO subject to certain adjustments, including: (i) amortization of fair value mark-to-market adjustments on mortgages, amortization of deferred financing costs, and compensation expense related to deferred unit incentive plans, (ii) adjusting for any differences resulting from recognizing property rental revenues on a straight-line basis, (iii) adding an amount in respect of Mainstreet development lease payments owed or paid, and (iv) deducting a reserve for normalized maintenance capital expenditures and leasing costs, as determined by the REIT.  Other adjustments may be made to AFFO as determined by our Trustees in their sole discretion.
(3)  Payout ratio is a measure of the distributions (inclusive of distributions paid on Exchangeable Units) compared to the AFFO.

Q3 2014 Financial Results

Revenue.  Revenue is rental income from single tenant operators who are under long-term triple-net leases and interest income from loans.  Revenue generated for Q3 2014 was $19.6 million, an increase from $12.8 million one year ago.  The increase was mainly attributed to the addition of 8 properties that generated additional revenue of $6.9 million and interest income on mezzanine loans invested in senior housing development properties.

Net Operating Income.  Net operating income, which is revenue less property expenses, for Q3 2014 was $18.5 million compared to $12.0 million in Q3 2013.

Net Profit (Loss).  Net loss, which is revenue less all expenses (including non-cash fair market value changes in investment properties and Exchangeable Units), for Q3 2014 was $9.7 million, down from a net profit of $5.3 million for the same period one year ago. The decrease was attributable to the increase in fair value adjustments and costs related to the Health Care REIT transaction.

Funds from Operations ("FFO"). Funds from operations for Q3 2014 was $9.4 million or $0.25 per unit ($0.25 per unit fully diluted). The increase in FFO was driven by the addition of new properties contributing to rental revenue.

Adjusted Funds from Operations ("AFFO"). Adjusted Funds from Operations, which is FFO subject to certain adjustments, for Q3 2014 was $10.1 million or $0.27 per unit ($0.27 per unit fully diluted). The increase in AFFO was driven by the addition of new properties contributing to rental revenue.

Distributions.  For Q3 2014, distributions paid on weighted average outstanding units, including distributions on Exchangeable Units, totaled $7.9 million, or $0.21 per unit which translates into a payout ratio of 78.2% for Q3 2014.

Financial Position

Cash.  At September 30, 2014, the REIT had cash-on-hand amounting to $4.9 million and restricted cash of $3.2 million.

Operating Line of Credit.   At September 30, 2014, the REIT had a secured operating line of credit of US$250 million secured by 24 properties in the U.S.; US$32.4 million was available on the secured operating line at the end of the quarter.

Debt to Gross Book Value.  Debt to gross book value is calculated by dividing total indebtedness, net of loan costs, by the total assets of the REIT.  At September 30, 2014, the debt to gross book value was 56.2%, inclusive of convertible debentures issued in November 2013, compared to 55.6% for the same period one year ago.  The debt to gross book value without convertible debentures is 50.3 % as of September 30, 2014.

Interest Coverage Ratio.  Interest coverage ratio, a measure of credit risk, is calculated by dividing net operating income by net interest expense.  For the quarter ended September 30, 2014, interest coverage ratio was 2.75 times, while the weighted average cost of debt was 4.3%.

Equity and Exchangeable Units.  At September 30, 2014, the REIT had 37.3 million units outstanding, including Exchangeable Units.  The REIT's closing unit price on November 4, 2014 was $14.11 per unit which resulted in a market capitalization of $526.3 million.

Acquisition of Senior Care Properties

On July 21, the REIT acquired one of two Alberta senior care and housing facilities as part of the previously announced acquisition of the Continuum II Portfolio for the aggregate purchase price of C$53.3 million. The second facility is expected to close in the fourth quarter of 2014.

HealthLease Owned Properties
Location   Number of
Facilities
  SNF/LTC Beds   AL/ALZ/ILF Beds   Total Beds
Alberta   12   515   916   1,431
British Columbia   1   57   159   216
Illinois   1   75   -   75
Indiana   12   976   294   1,270
Kentucky   1   54   69   123
Michigan*   2   271   -   271
North Carolina   13   185   809   994
Ohio   1   80   -   80
Pennsylvania   3   185   74   259
Virginia   6   505   -   505
Total   52   2,903   2,321   5,224
*The REIT has non-amortizing mortgages on these two properties in Michigan.  The REIT has the option to purchase the
properties on maturity of the loans for the principal loan balance outstanding plus US$1.00.

Non-Resident Withholding Tax on Sale Transaction

In connection with the Transaction, a portion of the units of the REIT (the "Units") held by each holder will be redeemed by the REIT in consideration for $14.20 per Unit (the "Partial Redemption").  The remaining Units will then be purchased by an affiliate of Health Care REIT, Inc. for $14.20 per Unit.  The REIT previously announced that it had estimated that approximately 46% of the Units held by each holder will be redeemed. The REIT has since determined that, based on current calculations, it is estimating that up to 85% of the Units held by each holder will be redeemed.

As previously announced, the entire amount paid to a non-resident holder of Units (a "Non-Resident Unitholder") on the Partial Redemption (as well as on the redemption of Dissent Units (as defined in the REIT's management information circular dated September 22, 2014), if any) will be subject to Canadian federal withholding tax. HealthLease will remit such tax to the Canada Revenue Agency on behalf of such Non-Resident Unitholders. A Non-Resident Unitholder who is a resident of the U.S. for purposes of the Canada-United States Tax Convention (1980), as amended, and entitled to the applicable benefits thereunder, will be subject to 15% withholding tax; other Non-Resident Unitholders may be subject to a higher blended rate of withholding tax. Non-Resident Unitholders should consult their own tax advisors with regards to the application of income tax conventions and the availability of any foreign tax credits, exemptions or refunds in respect of any Canadian withholding taxes. A non-resident holder of Units generally will not be subject to tax under the Tax Act in respect of any capital gain realized on the disposition (rather than the redemption) of Units, unless the Units are "taxable Canadian property" to such Unitholder.  Accordingly, non-resident holders of Units should consult their own tax and investment advisors with respect to the possibility of disposing of Units prior to the effective date of the Transaction, rather than pursuant to the Transaction.

Conference Call

HealthLease will host a conference call, November 5, 2014, at 9:00 am ET to discuss its third quarter financial results.  To access the conference call, please dial 647-427-7450 or 1-888-231-8191.  Please connect approximately 10 minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay by telephone until Wednesday, November 12, 2014 at midnight.  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 21548266.

Supplemental Financial Information

This news release is not in any way a substitute for reading HealthLease's financial statements, including notes to the financial statements, and Management's Discussion and Analysis.  The REIT's Fiscal Third Quarter and Management Discussion and Analysis have been filed on SEDAR and can also be viewed in the Investor Information section of HealthLease's website at www.hlpreit.com.

About HealthLease Properties Real Estate Investment Trust

HealthLease Properties Real Estate Investment Trust (TSX: HLP.UN) owns 52 seniors housing and health care facilities - 13 in two Canadian provinces and 39 in eight U.S. states, for a total of 5,224 beds. The REIT has entered into a contract to acquire one additional property and such acquisition is expected to close in 2014. The facilities are leased to experienced tenant operators who have significant operational experience. The leases are structured as long-term and triple-net: features that provide stability and dependability to the REIT's cash flow and distributions. The REIT's best-in-class portfolio meets the growing demands of modern seniors by emphasizing features such as hotel-like design, private rooms and baths and hospitality-inspired amenities. For more information, visit www.hlpreit.com.

Forward-Looking Information
Certain statements contained in this press release constitute forward-looking information within the meaning of applicable securities laws. The specific forward-looking statements in this press release include, but are not limited to, statements in connection with the expected completion of the Transaction. The REIT has based these forward-looking statements on factors and assumptions about future events that it believes may affect the Transaction, including that all conditions precedent to completing the Transaction will be met. Although the forward-looking statements contained in this press release are based upon assumptions that management of the REIT believes are reasonable based on information currently available to management, there can be no assurance that actual results will be consistent with these forward-looking statements. Forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond the REIT's control, including, among other things, the risks identified in the REIT's materials filed under the REIT's profile at www.sedar.com from time to time and the risk that the conditions to the Transaction will not be satisfied. The forward-looking statements made in this press release relate only to events or information as of the date hereof. Except as required by applicable Canadian law, the REIT undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Non-IFRS Measures
The REIT reports its financial results in accordance with IFRS.  Included in this news release are certain non-IFRS financial measures as supplemental indicators used by management to track the REIT's performance. These non-IFRS measures are Net operating income (NOI), Funds from operations (FFO), Adjusted funds from operations (AFFO), payout ratio, weighted average cost of capital and debt to gross book value (Debt to GBV).  See the sections entitled "Summary of the Key Performance Indicators for the Three and Nine Months Ended September 30, 2014" in Management's Discussion & Analysis of Results of Operations and Financial Condition for the three and nine months ended September 30, 2014 for the definitions of these non-IFRS measures.

The REIT believes that these non-IFRS financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the REIT. These measures do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other real estate investment trusts or enterprises, nor should they be construed as an alternative to other financial measures determined in accordance with IFRS.

 

 

SOURCE: HealthLease Properties Real Estate Investment Trust

For further information:

Adlai Chester
Chief Financial Officer
HealthLease Properties REIT
(317) 420-0205

Renée Lam
Investor Relations
TMX Equicom
(416) 815-0700 ext. 258

Organization Profile

HealthLease Properties Real Estate Investment Trust

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